The Economics and Politics of Elizabeth Warren

By Simon Johnson

Congressional Republicans are apparently intent on a big showdown with Elizabeth Warren, who is currently building up the new Consumer Financial Protection Bureau (CFPB).

This is very good news for the White House, if they use this opportunity wisely.

Some Republicans seem to think that Ms. Warren is about “big government” or “intrusive regulation”.  But this is not the case – Elizabeth Warren’s approach is much more appealing and already popular with almost everyone on right and left: Transparency.

Look carefully at Ms. Warren’s September speech to the Financial Services Roundtable and think about how this plays as a broader political message.

Her political principle is clear and completely compelling:

““…the best way, in my view, to strengthen those middle class families is to find solutions that are deep and lasting, that strengthen the markets, and that will create a robust, competitive consumer credit industry that works for families, not against them.”

Her economic approach is also right on target – the market should work for the consumer:

“I come to Washington as a genuine believer in markets and a genuine believer that the purpose of regulating the consumer credit market is to make that market work for buyers and sellers alike: a level playing field where the best products at the best prices win. When it works, the market is an ally to consumers. And, when it works, the market rewards those lenders who offer the best value to their customers.”

…

“When I talk about functioning markets, I’m not using the word “market” as coded
language for a return to the Wild West where companies use deception to pick off every consumer they can get in their sites. A free market is one where consumers have the ability to make well‐ informed choices, where the choices are visible and the terms are clear, and where there are cops on the beat to make sure that everyone plays by the same rules.”

In other words: stop already with the cheating of people.  This is not good for our economy, not good for business as a whole, and definitely not good for American families.

“But credit agreements have gotten long and complicated. In fact, there’s a new epithet: fine print. I understand that some of you call it “mice type.”Where I come from, nobody calls fine print, hidden fees and surprise penalties “negotiated contract terms” or “innovations.” On a polite day, my brothers in Oklahoma call that kind of stuff “garbage.””

This is the specific deliverable: Get rid of the fine print.

“An AARP poll earlier this year showed that 96 percent of Americans over 50 surveyed want to put an end to the fine print in their credit agreements. Just in case you missed the point, 91 percent felt strongly about that. 96 percent? These are your customers.”

And they vote.  This is exactly the terrain onto which the White House should seek to shift the political debate. 

Don’t play the Republicans’ game by agreeing to debate “big” vs. “small” government.  This is a complete illusion – just watch the favors that businesses will seek from Republicans on the Hill; not all of these appear “on the government’s balance sheet”, to be sure, but you can talk to the anguished people of Ireland about how exactly supposedly “pro-business” (and definitely pro-big bank) policies end up costing the taxpayer a lot of money.  (Or just look at how the financial disaster of 2008-09 ended up costing us 40 percentage points of GDP, measured in terms of the increase in our national debt – directly because of how the financial sector ran its customers and itself into the ground.)

The political debate should begin with documenting business practices that are misleading and duplicitous, wherever they occur.

We need transparency and accountability in the financial sector – and in all other parts of our economy.  Elizabeth Warren is exactly the right person to lead this charge, in the first instance from the CFPB.

She should be nominated by President Obama to head the agency.  The fight for her confirmation would make her ideas clear to millions.  Let’s see which senators exactly are willing to argue against greater transparency.

43 thoughts on “The Economics and Politics of Elizabeth Warren”

  1. When people assert that they are pro-business we really don’t know what they mean. It all depends upon what they believe the purpose of business is. Is it to maximize profit for its owners? Is it to provide its executives with as much material gain as possible? Is it to provide people with quality goods and services?

    If we look to what’s practiced as a means of determining which of the above applies we find examples that fit each. That said we also find that the most prevalent is maximizing material gain for executives, particularly in publically traded corporations. This is evidenced by the tremendous growth in the gap between what the average worker earns and what the top executives of organizations are paid—it’s multiples of a hundred times more—irrespective of the organization’s market performance. Demand for the organization’s products and services could fall but the compensation of its’ executives climb.

    It is not that they are for business as much as they are for what allows them to gain as much as they can in the short term. Likely, if something other than business afforded them the same material gain then they’d be for that instead. Business is just the instrument it is not the focus of their favor, personal gain is.

    So supporting the common pro-business cry may not really be support for the wellbeing of society and its businesses at all. Rather it is enabling those in authority of businesses to extract whatever they can from whomever they can and as quickly as they can in order to increase their personal gain, even though business is not a private affair.

    However, if the purpose of business is to provide quality to society in general, and to people in particular, then being pro-business means advocating for enabling the flow of the human spirit and the emergence of potential through the conduct of business with a different aim. This requires taking the long view as well as thinking in terms of (living) systems. In this way it is not business versus society but business for society. It means pursuing progress for the benefit of everyone and in more ways than just materially.

    Aren’t we all here for the long term? Shouldn’t we (all) be proponents of this different way of business?

  2. “This is very good news for the White House, if they use this opportunity wisely.”

    When such a thing is said, one may be sure there is “something” that is potentially formidable, the very crux of the problem.

    “Successful politicians are insecure and intimidated men. They advance politically only as they placate, appease, bribe, seduce, bamboozle or otherwise manage to manipulate the demanding and threatening elements in their constituencies.” – Walter Lippmann

    “Appeasers believe that if you keep on throwing steaks to a tiger, the tiger will become a vegetarian.” – Heywood Broun

    “The value of moments, when cast up, is immense, if well employed; if thrown away, their loss is irrevocable.” – Lord Chesterfield

  3. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public”

    Were in desperate need of a distinction here between “pro-business” and “pro-markets.” Businesses hate competing in free markets, and everything they say, especially the largest businesses, should be read through this prism. Being pro-business will often mean being anti-markets (arguabley “socialist”). For example, through failing to ensure a competitive market in finance and dealing with the TBTF problem, a Congressmen may expect to garner praise from big finance for being “pro-business.” S/he is certainly not, however, pro-markets.

  4. The working class (and Reagan Democrats) defend the R’s and the wealthy because they hope to see themselves in their income tax bracket some day… in the meantime, the lamestream media continues the brainwashing technique to control everyone on behalf of the 1 percent club. Elizabeth Warren can only do so much; Geithner (please help, http://adjix.com/5yq8) and Obama have her on a short leash so she can only bark at the TBTF banks from the sidelines.

    While You Were Sleeping, they are trying to undo some dysfunctional politics: (http://tinyurl.com/24qhsmx ). However, if you missed the last three years for some unfathomable reason, here is the entire Financial Crisis explained in less than ten minutes: http://tinyurl.com/377zywv. Also, explained is the One Percent Club and what that means for President Obama and his Administration in the next Congress: http://tinyurl.com/3yk2uwb .

    Finally, the best holiday rant so far:

    ’Twas the Night Before Doomsday

    Twas the night before doomsday
    When all through the marts
    Not a damn thing was stirring
    Not even the shopping carts

    Mortgages had been bundled by
    Theft merchants without care
    In hopes that someone else
    Would get caught holding scared

    There were almost three decades
    Of merchants playing in muck
    Keeping health care from children
    And gasoline in the truck

    w kept stem cells
    All safe in their sacks
    While soldiers were slain
    In WMD free Iraq

    Taxes were held low
    For those in the fast lane
    While wages for real workers
    Continued to wane

    Our philosophy and politics
    Were good for seven years
    We fought them far away
    So we wouldn’t fight them here

    We kept America for Americans
    Or at least rich Americans
    The poor will always be with us
    So why waste giving a hand

    America is for winners
    The losers only whine
    Let business do what business does
    And everything will be fine

    But the mortgage bundles failed
    The banks went down in flames
    Businesses quit hiring workers
    All sectors turned up lame

    But the free run capitalists
    Still making the deregulation call
    Heard the ghost of Ronald Reagan yelling
    TEAR DOWN THIS MALL

  5. How much longer is the Republican party going to bamboozle the conservative middle class into giving them their votes? When are they going to wake up and finally realize that the tacit agreement to fight for their guns, prayers in schools and the overturn of Roe v. Wade will only result in their complete economic demise at the hands of these rapacious scumbags!

  7. The Republicans have never been in favor of the free market. If they were they would be the first to put their boot on the neck of any company that cheated and demand the removal of the CEO and management. Notice for how long the Repugs looked the other way when Wall Street and the health care companies cheated everyone they could. However, Obama will probably roll over at the first sign of a fight.

  8. “This is very good news for the White House, if they use this opportunity wisely.”

    Uh Ugh. Ain’t gonna happen. Not with this limp biscuit of a sock puppet.

  10. Warren and her agency will be dismantled within 18 months. The Republicans have only just gotten started. The Democrats (and scholars such as those who post to this site) will take years to figure out just how the Republican Party so ruthlessly steamrolled the American public (and how the Democrats let it happen). I am not hopeful and no one who posts to this site should be either.

  11. Unfortunately, Obama is a weak President. At the first sight of a fight with Republicans, he’ll recoil and fire Ms. Warren. Or worse, her agency will become a toothless watchdog.

  12. what makes you think the right wants transparency? They want policies that transfer wealth from the middle class to corporations that are “too big to fail.” Lower wages, higher real interest rates, tougher bankruptcy laws, disinflation, no social safety net, etc. All serve the same purpose. You’re dealing with people who with a straight face claim tax cuts increase tax revenue.

  13. Business only serves to maximize the wealth of it’s shareholders, assuming the CEO is a shareholder. The public good is not the responsibility of business, but of government. Never, ever trust business to to anything other than seek profit, and short term profit is preferred to long term since there is greater risk in achieving long term results.

  14. Simon, I have said from the very outset, once the CFPB got made into law, that Liz should head it up, and the President should nominate her in the normal course of nominations. With her popularity, it seeems that the Republicans would have to give her a pass, unless of course they don’t want to be reelected. After all, we know that when the next campaign comes up, the Senators who worked against her confirmation will be “outed” and they will lose, no matter how long they’ve been “doing their jobs” and no matter what their track record is on any issue. Liz Warren could probably be the most loved candidate for the Presidency of anyone who ever ran, if she chose to do so.

    There is no question that she’s right, and no amount of argument, deception, or obfuscation of the truth will convincce any of us otherwise.

    Thanks for writing this one. We need to get this argument out into the mainstream media. But, with the media a part of the plutocracy, that’s unlikely to happen. I haven’t heard one story about this anywhere except Huffington.

  15. Well said John: I’ve said exactly the same thing; The GOP has bamboozled uneducated America so that the poorest, sickest and least educated states vote for them. Against their own self interest. Oh by the way the GOP also has an important subliminal task which has immense appeal to poor whites; “keep the non-whites down”. I say this as a 100% Scots-Irish educated American.

  16. “This is very good news for the White House, if they use this opportunity wisely.”

    That’s the biggest IF of all with this WH. They will throw this opportunity away with both hands, because it is the opposite of their goal. Just like they preemptively caved on “stimulus” and have now preemptively caved on austerity. They are going to put the screws on government employees. Pay freeze may not lead to much suffering, although it is the opposite of stimulus for the middle class. But now he is all set to “compromise” on pay *cuts* for federal workers which is his real goal (but strangely not the contractors, hmm, maybe federal workers need better lobbyists).

  17. No one is mentioning Ralph Nader for the position. He is the father of American Consumer Protection and, and the Republicans owe him big time.

  18. We could all best support Liz Warren’s crusade by uniting behind the Economic Policy Institutes new alternative budget proposal: “Investing in America’s Economy”, the progressive alternative to the Catfood Commission’s proposal to cut working people’s income, i.e. SS and Medicare, while extending tax cuts to the rich. November 30th is national call-in day to save SS, and we can mention this credible alternative, gathered by 3 orgs: Demos, the EPI, and Century Foundation, now hailed by the NY Times et all. Call your Congresspeople and Senators on Tuesday!

  19. “just look at how the financial disaster of 2008-09 ended up costing us 40 percentage points of GDP, measured in terms of the increase in our national debt”

    Excellent post Simon, but that phrase (while accurate enough) reminded me of something Michal Kalecki once said, “I have found out what economics is; it is the science of confusing stocks with flows”. :o)

    The President should go ahead and make a recess appointment. A five year term would be wasted on her since Massachusetts has a US Senate race in 2012.

  20. WikiLeaks Targeting Bank Of America? Interview Suggests Mega-Bank May Be Next

    11-30-10 12:10 PM

    “The next target of WikiLeaks may be Bank of America, if comments made last year by the organization’s editor-in-chief Julian Assange are any indication.

    At the moment, for example, we are sitting on 5GB from Bank of America, one of the executive’s hard drives,” he said. “Now how do we present that? It’s a difficult problem. We could just dump it all into one giant Zip file, but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it.

    You could call it the ecosystem of corruption,” he says, refusing to characterize the coming release in more detail. “But it’s also all the regular decision making that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest.

    The added attention couldn’t come at a worse time for Bank of America, which is currently embroiled in a federal racketeering lawsuit over its alleged use of “robo-signers” to process foreclosure documents. The bank is also facing battles over mortgage buybacks and new accusations that it routinely mishandled mortgage notes.”

    http://www.huffingtonpost.com/2010/11/30/wikileaks-targeting-bank-of-america_n_789804.html

  23. Some Republicans seem to think that Ms. Warren is about “big government” or “intrusive regulation”.

    We really need to start listing the people who continue to preempt serous discussions with this type of pure obstructionism. From what I have seen in the past this is usually a great indicator fro who is actually “cooked” on the books and “ON THE PAYROLL”

  24. All due respect, but where do you think all the “fine print” came from? Not some free market, it was the lawyers. They don’t call it a Schumer box for nothing. Like Obama, Warren says all the right things, but talk is cheap. If she was so honest, then why didn’t she reveal that she was getting paid to participate in suits against banks while running the COP. She should start working on her own conflicts of interest before preaching to others.

  25. Thanks to Simon for an overtly political entry. The notion that this is an issue of government versus the people is arrogant and brazen, a classic example of the big lie endlessly told.
    In other words, it’s completely in keeping with the current leadership of the Republican party. Having mortgaged whatever sense of fair play and compromise they once had, they seek only to play up to their perceived base as it tightens like a noose around their scrawny political necks.
    That’s why the suggestion that the other side simply go on the offensive is right-on. It’s time for a take-no-prisoners attack on the ridiculous notion that regulatory action is never needed. That’s how we got here, just in case there’s anyone out there who can’t remember past last week’s sound bites.
    This is a no-brainer, as easy as shooting fish in a barrel. The fools who got us here are no more deserving of a regulatory holiday than the bankers were in the 1930s, the ones who didn’t leap out the windows that is.
    The idiots on Wall Street crashed the car by building endless amounts of false value, a house of cards, predicated solely on endless piles of debt, while actively financing the disappearance of what used to be a real nuts-and-bolts economy. Screw them.
    When this Ponzi scheme cratered it took at least 8+ million jobs with it, at the same time that taxpayers saved their butts. People still don’t know what hit them.
    Time for payback in the most literal sense. No more 25% financing on credit-card debt, no more exploding mortgage payments, no more endless fees piled up on fees. Much of Wall Street creates value the same way that a perpetual motion machine does work: not at all.

    http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_cassidy

  26. Sorry, Mark. I want her preaching to you and to everyone else foolish enough to ever have believed that de-regulating the world would do anything but driving us off the cliff. The silly idea that someone who works for consumer protection shouldn’t sue banks when they become so crazed as to devour everything around the is patently ridiculous. It belongs in the ash heap of history right along with naked credit default swaps.

  27. Thanks for the post. It’s no surprise that ecological metaphors have crept into so much of our daily lives. They’re very appropriate to the notion of inter-connectedness, something alien to the narrow culture that seems to be so prevalent in the largest institutions. That’s the sole meaning of the Internet – it makes that connectedness transparent.
    Bank of America is caught in a vice. The robo-signers were just about the only hope it had of improving what Chris Whalen calls its bank efficiency. It’s very near to the point of having it cost a dollar to make a dollar. It needed to ‘dump’ its enormous volume of failed mortgages.
    These institutions are near collapse at this point. Without infusions of Fed dollars, and the hope of a quick international killing on interest rates, its problematical as to how long the can go on without a restructuring.

  28. Time to ask this question. Is economics frozen in time, using metaphors from a bygone era when the ability to determine so-called externalities was quite limited? The insistence on using such an out-dated notion, when our instrumentation is quite adequate to the task of bringing all those externalities into the calculations, seems exorbitant. The real cost of a ton of coal when all the health and environmental effects are factored in comes to mind, but there are lots of other examples.

  29. Warren should run against Obama in the 2012 primaries. Between Obama and the Repugs, the only reason she might not be canned ASAP is *because* on the off chance she might run in the primaries, or work for somebody who will….

  30. Request for Congressional Foreclosure Panel to Examine Foreclosure Lawyers
    http://www.change.org/petitions/view/request_for_congressional_foreclosure_panel_to_examine_foreclosure_lawyers#

    “Although increasing numbers of courts are continuing to reject improper and fraudulent foreclosures, the Congressional Foreclosure Panel examination of mortgage services and foreclosure practices did not include foreclosure lawyers.

    Lawyers are officers of the court; knowledge of applicable laws and civil procedure is not required from mortgage lenders. In states that require judicial foreclosures, lawyers are the ones who file lawsuits to seize and sell property; and lawyers are responsible for filing and recording foreclosure property deeds.

    An investigation could prove helpful to sorting out whether improper and illegal foreclosure proceedings are linked to any self-dealing conduct disadvantaging lenders, investors, homeowners, and city governments. . .”

    PETITION
    http://www.change.org/petitions/view/request_for_congressional_foreclosure_panel_to_examine_foreclosure_lawyers#

  31. “Business only serves to maximize the wealth of it’s shareholders, assuming the CEO is a shareholder.” And therein lies the problem. The very same principles and practices apply to crime syndicates and drug cartels. I always thought business only serves society, and consumers by providing the most excellent products and services.

    The entire system is so fetid and foul, that nothing can repair it. Elizabeth Warren’s gallant efforts and best intentions will be pushed back and silenced by the predatorclass and their spaniels in the socalled government. There will be no end to the horrors heaped upon the worlds poor and middleclass, nor will the predatorclass be held accountable for wanton crimes and abuse, until the people demand recompense. These demands (if ever appreciated, and I doubt they will be based on the peoples gross ignorance and numbnoneness) will be answered with massive retaliation from and by the predatorclass. Nothing will change, until the people demand REAL change, and that REAL change, and the actions necessary for implementing those REAL changes are revolutionary and will not be won peacefully, with stability, or bloodlessly.

    The entire global financial system is a criminal enterprize, benefiting ruthless and psychopathic predatorclass criminals exclusively. Every other human being on earth is reduced to digits or disappeared in the twisted cold calculus of the predatorclass.

    There will be a fierce recknoning and balancing, – because – in a world where there are no laws – there are no laws for anyone predatorclass biiiiiaaatches!!!!

  32. Agreed 100%.

    My comment was more about negotiating strategies / communicating with he other wise, perhaps demostrating my lack of knowledge and naivety about US politics!….

  33. “This is very good news for the White House, if they use this opportunity wisely.”

    And STILL nobody gets it about Obama! You’d think every Democrat was afraid of brownshirt gangs breaking down the doors. Hell, maybe they are.

  34. Actually, a truly Free market involves a buyer and a seller transacting free of rules or regulations. Everything we are seeing at the TBTF level to date sure looks like a Free market because even when a TBTF gets caught there is no effective punishment.

    So R’s appear to be advocating for a Free market – buyer beware.

  36. December 1, 2010: 6:05 PM ET – excerpts

    NEW YORK (CNNMoney.com) — The Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data released Wednesday.

    the total amount was a surprise, even to some who had followed the Fed’s rescue efforts closely.

    “That’s a real number, even for the Fed,” said FusionIQ’s Barry Ritholtz, author of the book “Bailout Nation.” While the fact that the markets were in trouble was already well known, he said the amount of help they needed is still surprising.

    “It makes it very clear this was a very serious, very unusual situation,” he said.

    Sen. Bernie Sanders, the Vermont independent who had authored the provision of the financial reform law that required Wednesday’s disclosure, **called the data that was released incredible and jaw-dropping “**.

    http://money.cnn.com/2010/12/01/news/economy/fed_reserve_data_release/index.htm

  37. So even after the Federal Reserve Board conjured up 9 TRILLION fiat dollars and gave it to their “god’s work” inner circle banksters

    the robo-signing foreclosure act carries on

    and just 5 of us girls were robbed of 2.5 million in SAVINGS…

    You’ve GOT to be kiddin’ me…

    Repeat after me people – THEY ARE NUTZ.

    Certifiably insane to BELIEVE that that much hubris and “creative destruction” is ABOVE CONSEQUENCES TO THEM PERSONALLY…

    Man, I’d at least be hiring a personal food taster for the holiday season if I was one of the war profiteers celebrating victory with a “party” –

    When those who LOVE money hire those who will do anything for money

    to CONSUME an entire civilization

    well, I guess anything can and WILL happen next…

    No hope for “peace” now…can’t say we didn’t try…

    But since we are going to be writing history to inspire generations to come, we need to make it lucid WHY we are going t do what has to be done…

    Constitutional Convention and BURN the Patriot Act.

  38. Saith Professor Johnson: “This is very good news for the White House, if they use this opportunity wisely.” HAHAHAHAHAHAHAHAHAHA! –After I wipe the tears of laughter from my face and reposition my diaphragm, let me wish the Professor the best of luck in his “if.” And many thanks for the belly laugh; it seems that In These Times the only honest humor is gallows humor.

  39. If we were to stop gazing at the blackboard for a moment and look out the window, what we would see is “free markets” are NEVER transparent and NEVER Pareto-efficient.

    So lets not try to get free markets off the hook by resorting to a trivial distinction between defending “free markets” and defending “business interests.”

    For the root of our intellectual and moral failure is the hermetic theology called microeconomics.

    This is the dirty secret of

  40. There are NO free markets. All existing markets are owned and controlled by oligarchs and the predatorclass.

    We inhabit a keptocracy practicing banditcapitalism; wherein the predatorclass and predatorclass oligarchs are afforded every advantage and “jaw dropping” largess and protection from a purchased government, and the people are denied formally scacred rights, freedoms and privileges, and forced to burden and hazard the terrible costs of the predatorclass ruthless criminality, grotesque failure, and wanton greed.

    There are no NORMAL remedies to right these horrible wrongs. The predatorclass is thoroughly entrenched and will not loose their death grip on the socalled markets and the peoples lives through legal structures or peacefully.

    The people are at war. The enemy is a fiendish and psychopathic predatorclass bent on owning and controlling all the worlds resources and enslaving or dissappearing the people. Anyone who dares challenge this wicked paradigm will be slimed, and if persistent eliminated.

    The entire system must be torn down, and eradicated, and a new more fair, more equitable, more sane, and more legal and law abiding system erected.

    If not, then say goodbye to the future of 99% of the children on earth.

    If so, – get stocked, locked, cocked, and ready to rock, because the real changes necessary will be won, like all societal changes before in the streets through revolution.

  41. Let’s stop gazing out the window and go right to the marketplace. Modern financial transactions, and the bets for and against them, happen in microseconds using globally networked computing power. All that churn is a non-linear iterated discrete dynamical system. In a nutshell, the system is chaotic. That’s not a conjecture, that’s the definition. That’s what this is.
    The entire ball of string can transition in a flash to other portions of the “attractor” on which the system is performing it’s daily dance. This has been well known for 35 years at this point, from seminale work done in the 1970’s.
    All we’ve done by introducing automation, and removing all regulatory controls is to speed the system up tremendously. That allows for the destruction of immense amounts of paper wealth in a flash, as in flash crash.
    The silly quants who dreamed this stuff up use risk models that try to wrap confidence intervals around system behaviours that have additional transition states embedded within them. It’s a fools game pure and simple.
    Without serious attempts at regulation this will happen again. The catch? There may be no one left to bail them out next time given what’s evolving in Europe…

  43. They chewed up and spit out Brooksley Born and many other women who were about PREVENTING the fiasco.

    And that “history” of what they did to others is what makes Warren less than credible.

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